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A short course of lectures
«Executive finance and strategy»

Interpreting financial statementsHow you might forecastHow to budgetCompany law and directors' responsibilitiesCreative accounting/aggressive accountingOrder and logicBackground to accounting standardsLessee accounting - basic approachEquityAccruals concept - a fundamental conceptLiabilitiesNo need for provisions or contingenciesGearing or leverage and the 'magic' of gearingBudget modelsInternal rate of return (IRR) or DCF yieldContent, order and logic of this chapterCash flow reports - illustrationCosting models - costing for planningFinancing activitiesKPIs, dashboards and detailed analysisInternal controls - accounting systems and procedures - prevention of error and fraudCash-flow-focused strategiesMethods of budgetingCommon errors in appraisal cash flowPublished statements of cash flowLeasing and off-balance sheet financeWhat extant accounting standards requireUK company law requirementsZero-based budgetingContent, order and logic of this chapterIncome statement - the P&L accountInsolvency - going concern - overtradingThe importance of cash records and reportsThe academic 'accounting framework' definitionsCommon types of modelsContent, order and logic of this chapterSources of fundsWhy the emphasis on 'useful in making economic decisions'?IAS 7 Statement of cash flowsCost of salesThe extractive strategyWhat is strategy? What does financial strategy mean?Dividend coverEnhancing qualitative characteristicsAssetsCosting models - definitionsContent, order and logic of this chapterThe time value of money and required ratesBedrock conceptsLiabilitiesEBITDARevenueThe difference between 'forecast' and 'budget'Examples of published income statementsRevision and learning pointers(e) ModellingPrudence and strategiesExample BVisionManagement reports - to assist with understanding strategy and its deliveryHigh gearing strategyOvertradingThe attitudes and behaviour characteristic of a particular social groupTerminology used in this bookObjective of the standardBookkeeping examplesOrder and logicStrategyReview question - interpreting P&L account profilesInvesting activitiesThe base modelOrder and logicWhat is the objective of financial strategy?Recognition of expensesPurpose of financial statementsAn arithmetical proof of a high-return strategyStrategic drivers of ROIIncome/sales/revenueFinancial position - the balance sheetWhy we have to disclose ratiosThe ideas, customs, and social behaviour of a particular people or societyThe pyramid of ratios'Reading' the balance sheetNon-discounted methods - accounting rate of return, ROCE or ROIExternal auditCautionary words on modellingA food producer and an engineering companyLinks between interpretation and financial strategyRevision and learning pointersSunk costsContent, order and logic of this chapterFinancial position - the balance sheetLeases where the lessee consumes or uses up part of the underlying asset (Type A leases)Common appraisal measuresHigher sales/volume strategyCapital cash flowsModelling operational structure, particularly costsSpecial purpose vehicles or entities -off-balance sheet activitiesAssetsBalance sheets - statements of financial positionIn favour of leasingReporting overheads - overhead analysisSubstance over formGLOSSARYSensitivity analysisHow might materiality impinge on strategy?Project appraisal - an integrated approachThe acquisition strategy - investing cash, or better still little or no cash but rather issuing shares, to acquire businesses which may be a bargain or which you can turn aroundWhat do successful companies say?Future developmentsFurther Companies Act 2006 sections of which executives should be awareInterests in joint arrangements and associatesTechniques for interpreting financial statementsLiquidity ratio/quick ratio/acid test ratioIn favour of purchasingAccounting systemsOrder and logicConsidering relationships - analytical reviewPublished or statutory accountsFurther strategy-related definitionsOrder of the chaptersAre your strategies co-coordinated and aligned?Structural or pure financial strategiesTacticRecognition of incomeContent, order and logic of this chapterDividends per share (DPS)Internal controlsStructure of the chaptersRevision and learning pointersStrategicCost of capitalWhat is the 'magic' of gearing?Definitions of 'financial', 'strategy' and 'strategic'Why be in business?Earnings per share (EPS)Random eventsObjective(s)Gross profitBasic financial reports and conceptsEquityInsolvencyThe dual approachGroup structuresOrder and logicInvest and sell on a promise strategy - beauty is in the eye of the beholder (or the deceived or delusional!)What underpins financial statements?Net present value (NPV) or present worthMethods of forecastingContent, order and logic of this chapterYou cannot do what you likeAsset strippingThe need for the most likely caseOrder and logicIFRS 12 Disclosure of Interests in Other EntitiesMaking a good return is the objective, but what exactly is ROI?More detailed analysis is requiredTrading strategy - acquire and dispose of companiesException reportingPrudenceWhy does the management report exist?Sale and leasebackMissionWhat is business strategy?Acquisition 'run-out' strategyAlignRevision and learning pointers(c) Extrapolation methodsLower margin/higher sales volume strategyAudit functionIncome statements and other comprehensive incomeBudget stagesLinks between management accounting and financial strategyAccruals or matching conceptSales and costing definitions and modelsExpenses/costs/purchases/overheadsRevision and learning pointersNPV or IRR - which should be used?Going concern - a fundamental concept, also termed an underlying assumptionInterests in unconsolidated structured entitiesAlternative balance sheet layoutsArithmetic of appraisal - discounting cash flowsComparabilityA simple balance sheet and a layout used for management purposesComparisons with external benchmarksInterest and loan repayment are includedPrincipal accounting concepts -going concern and accrualsThere is no such thing as 'just a figure'FinancialManagement accounting. Internal reports and business modelsSo how does all of this affect financial strategy?Revision and learning pointersWorked exampleHow you might use this bookLinks between cash and financial strategyWhat do balance sheets reveal about a business?Problems in implementing a ZBB systemLogic and orderRevision and learning pointersMore practiceNeed for a defined modelThe many uses of appraisal modelsWhy have accounting records? Why bother with bookkeeping?Uses of analytical reviewsCompany law requirements re storage and access to recordsThe statement of cash flows - the three views of business cashModelling the futureGoing concern - a fundamental concept, also termed an underlying assumptionLinks between financial statements and strategyValuing propertiesComparisons with past or budgeted performance or positionWhere do budget objectives come from?Operating activitiesFinancial strategy. Why be in business?Ratios - presenting one figure relative to anotherCriteriaNon-discounted methods - paybackWhat (discount) rate should be used?External ratiosAnalytics - can there be too much analysis?Revision and learning pointersNotes to financial statementsMeasurement of the elements of financial statementsThe simple truths from the tablesThe need for investment appraisalLinks with strategyAphorismsHow the concepts impact on the figures (and restrain some behaviour)Understandability (this word does not pass spell checkers!) and the existence of accounting phenomenaOrder and logicHow does management accounting support strategy?'One at a time' approachA higher margin (selling price)/lower operating cost strategyAccounting 'rules'. How accounting theory and rules affect the strategic numbersFurther considerationsTime value of moneyMarket to book ratioRatio analysisSubstance over formContent, order and logic of this chapterLeasesInterpreting financial statementsRecord keeping/bookkeepingLinks between published financial statements and financial strategyForecasting methodsGearing or leverage ratiosOrder and logicInitial measurementRecognition of assetsLower capital employed strategy - 'cheap is good!'ValuesAppropriate design of reports is importantCompletenessIncome statements - P&L accountsLinks between the book's chapters and strategiesCharts and graphsThe wide scope of management accounting(b) Researching Determining controlGoalLogic and orderUK full financial statementsCash: the vital elementCorporate governance covers much more than ethicsCurrent ratioWeaknesses of traditional budgeting and how ZBB differsAn incremental approachMateriality and relative amountsLife-cycle costing/whole-life costing strategyStatement of financial position -the balance sheetCosting models - costing to calculate full costsExample CExample A - XYZ picWorking capital ratios(f) Guaranteeing the figuresInterests in subsidiariesOther UK company law that has a bearing on financial strategiesGAAP, which may cause issues with strategiesCash flow modelsBasic definitionsCash flows for trading - working capitalWhat does budgeting mean?Earnings yield and dividend yieldOrder and logicThe probability of future economic benefitExternal and internal audit - prevention of error and fraudContent, order and logic of this chapterFuture reportingCommentaryMission statementsWhat do GAAP, FASB, IASB and IFRS mean?Budget reportsRevision and learning pointersThe mundane money-making strategy -cash generation for everRecognition of liabilitiesMotiveForeign currency issuesThe need for a consistent and robust processThe capital investment strategy - invest for a longer-term returnOrder and logicContent, order and logic of this chapterTheir place in financial statementsTargetOther reasons for internal controlRecognition and measurementThe strategic reportBudget cultureWhy have detailed internal management reports?BudgetingRisk identification and managementLinks between investment and financial strategy(d) Leading indicatorsAutomating the interpretation - intelligent interpretationThe objective or purpose of financial statementsFinally, does ZBB work?Analytical reviewWhere cash appears in financial statementsHedging strategiesLong-term views are encouragedWhy budget?Cash flow forecastsWhat does the BT pic cash flow statement tell us?Share valuesInvestment appraisal. Investment strategyCompounding and discountingStatement of cash flowsMaterialityCash flow modelsPrice to earnings ratio (P/E ratio)Developments in financial reportingHow does making a return on investment link with strategy?Lease versus buyLinked parametersThe structure of a statement of cash flowBT plc Group balance sheetExamples of company cash flows and how they relate to strategiesA checklist to assist with making clear, actionable reportsWhat is meant by 'sensitive' - what levels of sensitivity can be tolerated?Depreciation costs are includedLeases where the lessee pays for the use of the underlying asset (Type B leases)Content, order and logic of this chapterGoing concernAsset lightAssessing control - investor assessment(a) Incremental budgetingHow much analysis should be carried out?What successful companies sayContent, order and logic of this chapterTime baseWhat is meant by 'rate'?Corporate governance
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